Yahoo Finance Is Kerry Group plc (ISE:KRZ) A Financially Sound Company?
Kerry Group plc (ISE:KRZ), a large-cap worth €15.78B, comes to mind for investors seeking a strong and reliable stock investment. Doing business globally, large caps tend to have diversified revenue streams and attractive capital returns, making them desirable investments for risk-averse portfolios. However, the key to their continued success lies in its financial health. This article will examine Kerry Group’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into KRZ here. Check out our latest analysis for Kerry Group
How much cash does KRZ generate through its operations?
KRZ has shrunken its total debt levels in the last twelve months, from €2.07B to €1.75B – this includes both the current and long-term debt. With this debt payback, the current cash and short-term investment levels stands at €312.50M , ready to deploy into the business. On top of this, KRZ has produced cash from operations of €671.40M in the last twelve months, resulting in an operating cash to total debt ratio of 38.37%, signalling that KRZ’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In KRZ’s case, it is able to generate 0.38x cash from its debt capital.
Can KRZ pay its short-term liabilities?
With current liabilities at €1.57B, the company has been able to meet these obligations given the level of current assets of €2.03B, with a current ratio of 1.3x. For Food companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Does KRZ face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 48.97%, KRZ can be considered as an above-average leveraged company. This isn’t uncommon for large companies because interest payments on debt are tax deductible, meaning debt can be a cheaper source of capital than equity. Consequently, larger-cap organisations tend to enjoy lower cost of capital as a result of easily attained financing, providing an advantage over smaller companies. We can test if KRZ’s debt levels are sustainable by measuring interest payments against earnings of a company. Preferably, earnings before interest and tax (EBIT) should be at least three times as large as net interest. In KRZ’s case, the ratio of 12.11x suggests that interest is comfortably covered. High interest coverage is seen as a responsible and safe practice, which highlights why most investors believe large-caps such as KRZ is a safe investment.
Next Steps:
KRZ’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around KRZ’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for KRZ’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Kerry Group to get a better picture of the large-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for KRZ’s future growth? Take a look at our free research report of analyst consensus for KRZ’s outlook.
Valuation: What is KRZ worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether KRZ is currently mispriced by the market.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
